Platina Energy has filed for protection from its creditors through Chapter 11 bankruptcy.
As I pointed out in the last BLOG entry, the most recent 10Q provided more questions than answers, and today the answers have come.
This is not a complicated situation. The company has been victimized by a combination of mismanagement and circumstances that are out of its control.
Here’s the formula for disaster. Obtain the rights to some oil and gas properties. Go out and borrow a bunch of money from a fund with a conversion feature into the common stock as a back up in the event you can’t make the monthly cash payment.
Take the money and go drill your wells. Now- two things happen- your wells start producing, but not to the level you had anticipated, and you have some problems bringing all your wells online.
Next, have the price of the commodity you are producing get cut to 1/3 of the price it was at the high.
So, you have lower production than you planned on, and lower prices than you planned on. Guess what- you can’t make your cash payment since you are underfunded and have no cash resources.
So- what do you do? you have to give the shares underlying the debt to the creditor in huge quantities, and the creditor destroys the market for your stock.
And, that’s today’s bedtime story for Platina Energy. The circumstances?- the plummeting price of oil and gas. The mismanagement? Borrowing money with an underlying equity conversion feature, and not getting your wells to produce as promised.
So, what next? Your stock is destroyed, and you can’t make the monthly payments out of cash flow, so you file for Chapter 11 bankruptcy, which provides you protection from the creditor while you figure out how to work this out.
So, in a sort of twisted way, this move is probably the best thing for the shareholders. It allows the company to stop issuing stock to cover their debt obligations, and gives them some breathing room.
It seems like the company does have some value in the form of hydrocarbon reserves. The CEO claims he has $25 million in reserves and the data to back it up. The accounts won’t let them book it that way.
What to do now if you’re a shareholder? My thoughts are the same as the last BLOG. Hold it and see how it comes out, or sell it for the tax loss. Don’t buy it. You never know how the common shareholders are going to be effected by a reorganization bankruptcy. I have seen them come out quite favorably for shareholders, and go the other way as well.
However, with the bankruptcy filing and only one major creditor, the common stock holders have a better shot today than they did yesterday.
Comments and questions are welcome.
If the company keeps loosing 0.31 cents per share the stock will nerver go up.
yours truly
Concerned Investor
Editor: Guys- I’m not sure why everyone is so concerned about these trailing issues. A bet on this stock has nothing to do with this history. The market cap is about $14 million, which is the main issue. Is the company going to be worth more than $14 million ? The first quarter of revenues is going to be Q3 of ‘08, which is due out in mid November. In the interim, the company seems to be willing to disclose weekly revenue figures. They have publicly stated there is about $1/2 billion in reserves, which based on the new pricing could be now down to about $300 million. Owning this stock is not a bet on what happened in the past- it’s a bet on the revenues that just started to flow about July 1st. If they’ve really got it, the stock will trade better at some point in the future. That’s your bet, and that’s what you should be concerned about in my view.
I think you should be stoped
Editor: Is there a question here?
Is it the company that’s been victimized?
Editor: Yes- bad financing, tough environment, and mismanagement by the guys running the company. To what extent, I can’t say. But they didn’t deliver the cash to meet their debt obligations- hence the destruction in share value.
Have you heard anything in regards to their servival as a on going entidy?
Editor: I believe they are more likely to survive in bankruptcy protection. However, the stock offers really no chance of returning to former levels. They will have to restructure, and no doubt lose their listing as well.
I understand bankruptcy,in a restructring do we still have a chance of getting some of our money back, or when this happens should we just throw in the towel? Thanks Verland
Editor: Verland- the company has a chance of surviving- however, the common stock shareholders are unlikely to see any major rebound in the price anytime soon. In short, there’s no reason not to sell it and take the tax loss. The company could come back someday, but the common stock shareholders from old prices are unlikely to see daylight.
If the company is in chapter 11 and you have invested a small amount in the past why not invest more now and have more shares?we may be on the eve of an american oil and natural gas boom.
Editor: Because in a bankruptcy situation the common shareholders generally get wiped out in favor of the debt holders and preferred holders. However, if the company does emerge out of bankruptcy with any performing assets that are owned by the common shareholders, it could be one heck of a buy.
Larry What’s the likelihood of that happening? This is in responce to Fields question, & have you herd anything in regard to the Chapter 11? Thanks Verland
Editor: The company is in bankruptcy. I don’t expect the common shareholders will get anything worth mentioning out of it. If and when the company emerges from bankruptcy there could be a play, but for now it’s simply dead.
What if you bought put options on this stock? Could you have made money this way?
Editor: There were never any options trading on this stock. Too small. You might have been able to short it, but it’s a very hard trade to get done.